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Monday, July 14, 2008

Opinion: Low Takeouts Are Our Friend

I’d like to issue a challenge. Two people are picked at random who have never bet before. It could be anyone really. Each person gets a coach who is a good handicapper. One coach is a track executive picked from any North American racetrack, and he has to play by his rules. The other coach is a professional bettor, and he gets to play by his rules. Each hand-picked person gets a mythical $1000 bankroll. At the end of 150 days of betting we get to see who helps racing the most and who will continue to help the game in the future.

Let’s make each player a losing player. Each player has a return on investment of 0.96, or on each dollar bet, they lose 4%. This is a very good player. It is difficult to lose only 4% with such high rakes in our game. But regardless, they will both be losers.

The regular player, coached by the track executive plays by track rules. No rebates. Let’s say the vig, or rake is 15% on win bets. The professionally coached player gets to play by his rules. Rebates are not outlawed. Let’s make the rebate fair. Say 5%. So, the takeout on his win bets is 10%, not 15%.

Each day, each player bets his bankroll in full. Since our starting bankroll is $1000 that means each player makes ten win bets of $100 on the first day, and so on, depending on his bankroll.

So, all the rules are equal except for the rakes. Now, let’s play and see what player helps the business more.

After day one, the player coached by the track executive loses 4%, with his 0.96 ROI. That means he bets $1000, gets back $960 for a loss of $40.

After day one for the professional player’s student, the ROI is the same. He bets $1000 and gets back $960. He loses $40. BUT, he gets a rebate of 5% remember? So when that $50 is added to his account, he now has $1010. This seems like a minute amount, because after all, what is 5 percent, right? It’s only ten dollars to his bankroll on the plus side!

Now we keep playing, with the same rules, with the two people of completely equal skill.

After 150 days of playing, this is the result:

The track exec coached player is almost broke – he has around $2 left. He has bet in total, around $24,000. Not too bad at all. He played for a long time and he really contributed a lot to purses. 15% of $24000 is $3600. That is $3600 to purses and profits.

The professionally coached player, with the 5% rebate (remember the takeout reduction was tiny right?) did better. A whole lot better. That small rebate helped the player win. Not a life changing or earth shattering amount, but it helped. He ended up with over $4000, or $3000 profit. Well, of course he did, you say. He took some of the tracks profit and purses, so he had to have made money. He made money at the expense of us! He took our $3000 profit for himself!

Not so fast.

Our player, with that small takeout reduction, bet over $330,000 in those same 150 days of betting. That’s three hundred and thirty thousand dollars! How about the proceeds to the track and horse-owners for purses? Well we gave a 5% rebate, so instead of charging 15% we charged 10%. 10% of 330,000 is $33,000. That player, with a little help, contributed $33,000 to purses instead of the player we did not help who contributed $3600 – almost 10 times more.

More importantly, that player is still playing. Remember, the first player is broke. I bet the winning player will be playing for a long, long time too. And I bet he will tell friends.

Now you know why in online poker, a player can play for months and months with a small bankroll and he tells his friends to play too, and the game grows. Or why betting giant betfair with their low vig has a million clients and is growing. Their business model assures it.

It’s churn. It’s low takeouts. It helps people win and become long-term horseplayers. Players who are serious about the game and might be, or were, our best customers have left to play new low rake games. Let’s get them back.

Low takeout is our friend. And the rest of the gambling world from slots, to poker, to sports betting has known it for generations.

It is time racing joined the party.This opinion piece has been printed with permission from the Pull the Pocket blog. He has joined HANA, as many of the principles he supports; and he, like all HANA members, wants to see the game grow and be a force in the 21st century gambling landscape.

12 comments:

Your math is correct but your leaving out what I think are important factors. Well in my opinion anyway.

Historically pari-mutual wagering has been a level playing field for all players. Rebates changed that radically.

To infer it's fair is a stretch for sure. For the privileged few that churn upwards of millions of dollars using batch wagering,(computer software,having direct access to the pools.)

Getting anywhere from 7 percent to 14 percent in rebate kick backs is not in my opinion a level playing field. That alone goes against the very purpose of "pari-mutual wagering."

These so-called "whales" are harvesting the average players money, including the tracks, horsemen and ADW's. Who gets some of it is being disputed now.

The whales can end up with 3 percent profit, maybe more on a churn of eight or nine million dollars. That's a lot of bucks that they wouldn't have earned otherwise without the rebates.

I hate to think about how much is churned when you put together all the whales. They are "programmed" to win. I doubt anyone of them would be successful handicapping and wagering on the horses the traditional way. So please don't tell me it's fair to the average players.

I think a compromise can be reached for the benefit of all involved but by no means exclude the average players. They broke the mold so we are stuck with it. Sorry to say.

However, the premise in the piece just used that to show lower prices and what they can do. This could be a $100 player, or heck, all players. It is an illustration what a 10% rake does for bettors versus a 15% rake - nothing more.

My position is every player should be on level playing field when it comes to pari-mutual wagering.

To me allowing a privileged few rake the pools reeks of unfairness. There's to many negative things that players along potential players are concerned about.

Look at it this way, if the game was advertised as fair, fun and open to everyone nation wide and not considered to be "fixed" for the whales or those on the in, racing would be much better off.

When everyone gets the same rebate (we are stuck with it) then it becomes "fair". Strike out a percentage. 4, 5, 6, what ever can be agreed upon. The rest can be split up with those that operate the works, including the horsemen and independent breeders. To me that would be a reduction in takeout. Correct?

Back to your first post, think about this, if we can get just million more new players over a five year period, they would churn a heck of lot more money than all the "whales" put together. No one would need them. Those in charge don't know how to promote the game, they are more interested in their own survival.

We have to get back to what made this game to begin with. That's making the horse and race horses a cultural thing like it used to be. Fun to ride, fun to see run, fun to own, fun to race, fun to wager on.Plus "catering" to the public at the track and online.

Only a fair and honest game will bring that about. That's not the perception today.

I tell my members drugs add to the chaos in racing so you have to cover your fanny going deeper in the picks and gimmicks to make money. Pure and simple invest more money. There's a normal amount of chaos in racing to begin with. The extent of cheating that exists now won't bring new players to the game.

That's what HANA can do for me. Just for starters though, I have a list. :)

Indulto, same numbers. Same result. The example itself says player A has 5% lower takeout than player B. The only way the piece makes sense is if there is a way for two players to play at different rakes to illustrate it. It was illustrated with a real world example of a rebate, but they are one in the same.

Of course if both players had 10% takeouts instead of 15% (i.e. a 5% win takeout reduction), well they both become players for life and make a few dollars. Which was of course the point. And horsemen get $66,000 for purses, not $37000. Which is a good thing too.

Twindouble,

We have spoken so far about lowering prices for everyone, and it is something we all agree on. This game is a great game, but it is a better game when we win, and bring players who can at the very least have a shot to win back to it. That way it grows.

Because the comments here appear under each captioned article, rather than being threaded and updated as new comments are added, I am not sure anyone will actually scroll down and read this comment posted under an article that is a week old and is now buried under others, but none the less here goes.

The reduction in take out suggested here is classic supply side economic theory. Adoption of such a policy; while highly desirable, faces some enormous challenges which are part and parcel to how the industry is both regulated and operated in the first place. These challenges also speak to the critical need for the adoption of more uniform regulations and standards before overcoming them can likely be achieved.

Before starting down that path however let's first examine the issue of takeout in comparison to the cost basis of other industries that a broader audience is more familiar with. Open the daily newspaper in any town in America, and you will regularly find wide publication of bank interest rates for Certificates of Deposit and Money Market Rates, as well as mortgage interest rates as well. The same information can be found in the online version of newspapers, or other equally accessible internet resources as well.

CD, Money Market, and Mortgage Interest Rates published in these forums are often illustrated as comparative data tables for competing providers which place the consumer in superior position to make an informed decision of where it would be best to invest.

Where is the comparable data consolidated and available on a comprehensive basis for the horseplayer, so that they might better understand the best place to invest their money, and determine which options offer the best opportunity for a return? Nowhere!

I applaud for adopting greater awareness of this issue for the player as part of their Mission Statement. This can only lead to a more informed player, and this could influence the migration of handle from one facility or jurisdiction to another, but could also result in a change in wagering patterns even in the event the player chooses not to abandon a facility in ajurisdiction in which they otherwise have a strong affinity for, for a multitude of reasons.

One of the significant differences between parimutuel wagering and CD, Money Market, and Mortgage rate investment decisions, is the dramatic difference in the markets, and the regulatory schemes. Bank interest and mortgage interest rates operate in a competitive market driven environment that can be far more flexible in adapting, and adopting to meet consumer demands, within reason.

The takeout allowed and prescribed in parimutuel wagering is far less influenced by competitive factors; in part because the overwhelming majority of players have limited knowledge or awareness of the comparative take out costs from one facility to the next. I believe rae tracks themselves often have far less flexibility to make independent changes to their own takeout than banks or mortgage brokers, because takeout rates themselves are not established in a competive market driven environment.

In some jurisdictions I believe take out rates are established under statute, in others by regulatory rule, and on others operators may have some flexibility, but are subject to certain outside influences which limit their ability to respond with adjustments based solely due to competitive pressures from other jurisdictions.

Once more aware of the costs and differences however, then players can influence the market more directly, but only of they concert (much like the tracks, the horsemen, and the ADW's) in order to do so.

Let's face it; and without knowing the specific particulars off of the top of my head, let's try to create an example that can illustrate that; even when armed with information, that takeout itself is not the sole influencing factor take into consideration when deciding where to invest their money. Even an informed player will make what seem like less rational decisions on where to wager due to other influencing factors as well.

Let's say that I am a veteran OTB player in my late 50's or early 60's living in Iowa that wagers almost exclusively on WP&S pools, and my local live track and simulcasting option comes through Prairie Meadows, not exactly the pinnacle of quality for live racing even when in season. The seasonal weather patterns guide my wagering opportunities and interest, and through force of habit I develop an affinity for regularly playing Fairgrounds and Golden Gate (assuming for this example that they run their seasons simultaneously).

Now; over the last year I have become more computer literate and comfortable and confident in both seeking and finding information on line, setting aside for the moment the ability to wager in that forum as well. With access to the information now made available to me through HANA however, I come to discover that the take out on single pool WP&S bets at both Fairgrounds and Golden Gate is 22%. I also discover that Calder and Remington Park are also running live meets at the same time, but the takeout for WP&S wagers at these two venues is only 17.5 %. Strict economic theory would seem to suggest that for a 3.5% better rate, I should abandon Fairgrounds and Golden Gate, and run all my wagers through Calder and and Remington Park.

The reality however is that; I may know nothing of the regular jockey colony or the stronger or weaker breeders,owners, and trainers based or racing at these two tracks. I may also feel intimidated by trying to determine a new track bias for Calder and Remington Park, when I feel like I know Fairgrounds and Golden Gate much better.

Before I make any change of venue wagering decisions however I also realize that Fairgrounds and Golden Gate are better for me timing wise during the day, than Calder and Remington Park are, in order to watch and wager more regularly. I have also watched a few races at each, to try to get the feel for things and come to the conclusion that I don't like the track announcer at Calder, and the camera angles at Reminton Park are not good for me in following the horses throughout the course of a race.

So at the end of the day; even though I am now more informed about the underlying costs of takeout (thanks to HANA) how can I be influenced in order to change my wagering habits to the lower cost provider?

Now; lets expand the example to determine how I might influence Fairgrounds and Golden Gate to reduce their take out levels on WP&S wagers to the same levels as those of Calder and Remington Park. By myself; my re-directing my wagering dollars from Fairgrounds and Golden Gate, to Calder and Remington Park would likely have very little impact.

I decide that I really want to get the lower take out of 17.5%, but at the tracks I am more familiar with. In order to do this, I lead the effort through HANA, to organize a massive re-direction of wagering dollars from Fairgrounds and Golden Gate based exclusively in take out.

Fairgrounds and Golden Gate themselves now recognize they can not compete with Calder and Reminton Park when it comes to takeout. In order to adopt the lower takeout however Fairgrounds realizes that they must seek and gain permission to do so through the Louisiana Horse Racing Commission. Golden Gate on the other hand can only reduce their takeout through a legislative change which might take 6 years to enact due to other legislative priorities and political and economic issues. under state law.

So at the end of the day I begin to discover that the change that I wanted can not even be achieved easily through revolution, and may only come about in a far more evolutionary process that will certainly take more time than the speed with which competitive market driven forces in the banking industry can adopt.

So my question is do I switch to a lower cost provider that in the end I view as providing less convenience and lower quality, even if they offer me a substantially lesser cost?

I apologize for the lengthy explanation of the comlexity of some of the issues as I see them. My hope in laying it out in this fashion however is not to discourage the opportunity to achieve succes for HANA in influencing this aspect of the game, but rather to force some thought around how this might best be done by influencing wagering handle migration across jursdictions.

In developing and organizing the takeout data by individual track, I think that there will likely be a need to organize this in several different fashions as well. One important way to organize this data will be to present it regionally, since to some extent horseplayers limit and direct their play to places in their own, or consecutive times zones. They also have a tendency to follow a circuit which allows them to wager on substantially the same jockey colony and trainer community at virtually alltimes of the year, with some obvious exceptions for reaching out to wager in other more far flung jusirdictions based on other influending factors.

Another important way to present and analyze the data, will be to compare the take out rates between all tracks operating during essentially the same seasonal time period, so that the player can compare and make a cost based wagering decision on the lowest cost provider during the season, and on the day that they decide to make their wager.

Finally, if the effort is to be successful towards influencing one venue to move towards lowering its take out to meet that of another, and the tactic determined to influence this is a collective effort through player education to migrate handle from one location to another, it would be important to know the process through which the venue that must reduce their takeout to compete has to go through in order to accomplish that, and what the polticial realities and realistic timelines might be.

The overall success of the effort would seem to me to be far more likely in the long run, if you could get more facilities to lower their takeout sooner. In order to influence that in an organized fashion you would have to match up those facilities and jursidictions with the greatest flexibility to do that, with others that are operating in the same regions, during the same seasons, with the same level of flexibility, in order to take down more dominoes in a row.

Hopefully this wasn't too dense both in volume as well as in theory to make sense to those that take the time to read it. I just wanted to offer some perspective on why I believe that this process will not be as simple as publishing take out rates and encouraging players to boycott all tracks in column A, in favor of those that are in column B.

I hope this is helpful, and I apologize in advance for any errors or omissions. Any of those identified are far more likely to be attributable to the fact that while I can spell pretty well, I am typographically challenged.

what a great comment! you covered a lot of ground, I wanted to agree with you on your point about compiling comprehensive data, not just the track takeout, but also who has the authority to change it.

We do have a real disagreement amongst horseplayers in general I think, about rebates. Everyone sees lower takeout as the goal, but knowing the complicated and jursidiction by jurisdiction approach required to change it does make it seem a long way off.

I think in light of that, the idea of using ADW as a tool for lowering takeout is something we need to agree on, less than perfect as it is. I think the main problem with how that has been implemented is availability, with takeout reduction only for very large bettors (with the notable exception of Premier Turf Club). I think the ADW simulcast model needs to directly incentivize all ADW to rebate, so they can leverage the ease with which it can be done at the ADW level.

If we can push real takeout reductions down to all levels of ADW play, even if they do remain tiered by volume, we'll be one much larger step closer to a universally lowered takeout. If, as I suspect we would, we see a significant increase in ADW handle growth, the tracks and jurisdictions themselves should be taking the move of working to lower their own takeout, so on-track can enjoy the same benefit.

I commend HANA and those that behind setting up this organization. HANA posters comments only bring out the complexities and the huge task at hand to have any impact on the racing industry that would benefit the players.

There is some truth to what you said on players sticking to their home turf. Having higher takeout of 2 or 3 percent is of little consequence when your making money at that track.

What I wouldn't lose sight of is avid horse players are very adaptive to new turf and changing times, this proves out because in many cases over the years his or her home track were closed up.

I also agree with the regional aspects of your thoughts following the connections and horses. Climate historically dictates what tracks are available to wager on through out the year ESP here in New England. The regulatory aspects of the tracks or OTB's is and has been right along a can of political worms to say the least. Online wagering has change that dynamic.

OTB's and online wagering gave us access to more tracks and expanded wagering menu's along with more opportunity. So we chucked the idea that your home turf is only place to be to make money. Painful for some but like you said, in time we adapt and learn like you have right along.

The fact that many tracks closed up the cultural aspect of racing went out the window in those communities.

Some say less is better now, allowing a few tracks to operate or Magna types running the show creating less competition. That isn't working in the breeding industry, the rich and powerful took control but look what we ended up with. My feeling is, any monopolization of racing will only feed the rich, not the players. Like always we are way down the list of priorities.

Yes HANA has it's work cut out for sure attempting to look out for the players. Historically there's only two events where players were effective in making change that I know of. I don't recall the track or exact date but there was a riot when a favorite entry was scratched at the gate, as a result the rules were changed. The other, myself and partner started a petition to bring back the twindouble when the track canceled it, we were successful.

So on a local level we could in our minds back then be more effective players and change things. Your task is nation wide involving very complex issues, political and legal.

The business model in racing as someone here said has changed. The question for HANA is, have those changes befitted the players in the past and will they in the future. I've stated my thoughts on rebates for example.

It all boils down to what I said, "what can you do for me". That's how you'll get and maintain my support and others to join.

The only way as of now we can effect the takeout is to go after a percentage of those rebates.

I for one sitting here wagering on line have no need for the point system. I don't want a camera, a garden tool, free meal or a power tool. Needing a zillion points for large screen TV that I already have is joke compared to what the whales get in "cash". The average online player needs that cash to succeed also.

Turning horse racing into casino type operations in my opinion will be the death of it along with all the traditions we love and charish. They can't increase the fan base with casino type operations offering quick picks on gimmicks and picks. Horse racing traditionally offered up much more than that, so losing sight of what made the game great and fair is not in my opinion the way to go.

Take the home run out of baseball and you'll see the fan base disappear.

I commend HANA and those that behind setting up this organization. HANA posters comments only bring out the complexities and the huge task at hand to have any impact on the racing industry that would benefit the players.

There is some truth to what you said on players sticking to their home turf. Having higher takeout of 2 or 3 percent is of little consequence when your making money at that track.

What I wouldn't lose sight of is avid horse players are very adaptive to new turf and changing times, this proves out because in many cases over the years his or her home track were closed up.

I also agree with the regional aspects of your thoughts following the connections and horses. Climate historically dictates what tracks are available to wager on through out the year ESP here in New England. The regulatory aspects of the tracks or OTB's is and has been right along a can of political worms to say the least. Online wagering has change that dynamic.

OTB's and online wagering gave us access to more tracks and expanded wagering menu's along with more opportunity. So we chucked the idea that your home turf is only place to be to make money. Painful for some but like you said, in time we adapt and learn like you have right along.

The fact that many tracks closed up the cultural aspect of racing went out the window in those communities.

Some say less is better now, allowing a few tracks to operate or Magna types running the show creating less competition. That isn't working in the breeding industry, the rich and powerful took control but look what we ended up with. My feeling is, any monopolization of racing will only feed the rich, not the players. Like always we are way down the list of priorities.

Yes HANA has it's work cut out for sure attempting to look out for the players. Historically there's only two events where players were effective in making change that I know of. I don't recall the track or exact date but there was a riot when a favorite entry was scratched at the gate, as a result the rules were changed. The other, myself and partner started a petition to bring back the twindouble when the track canceled it, we were successful.

So on a local level we could in our minds back then be more effective players and change things. Your task is nation wide involving very complex issues, political and legal.

The business model in racing as someone here said has changed. The question for HANA is, have those changes befitted the players in the past and will they in the future. I've stated my thoughts on rebates for example.

It all boils down to what I said, "what can you do for me". That's how you'll get and maintain my support and others to join.

The only way as of now we can effect the takeout is to go after a percentage of those rebates.

I for one sitting here wagering on line have no need for the point system. I don't want a camera, a garden tool, free meal or a power tool. Needing a zillion points for large screen TV that I already have is joke compared to what the whales get in "cash". The average online player needs that cash to succeed also.

Turning horse racing into casino type operations in my opinion will be the death of it along with all the traditions we love and charish. They can't increase the fan base with casino type operations offering quick picks on gimmicks and picks. Horse racing traditionally offered up much more than that, so losing sight of what made the game great and fair is not in my opinion the way to go.

Take the home run out of baseball and you'll see the fan base disappear.

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